Group Homework 2

Jean-Pierre Benot

This is a group assignment due 20 October, 11:00 am. Turn it

in using Canvas.
You have organized an open air concert featuring several music bands.
The grounds on which you are hosting the concert can hold up to 25; 000
people.
Your marketing department believes that at a price of $250, you will sell
15; 000 tickets. In addition, for each decrease of $1 in the price of a ticket,
you will sell an extra 100 tickets, while for each increase of $1, you will sell
100 fewer tickets.

You are paying the musicians a at fee of $150; 000, plus an additional
$6 for each ticket sold.

You anticipate extra clean-up costs of $2 per concertgoer.

Independently of the number of concertgoers, you have various charges

that you must pay for the grounds and to the local community. These
charges come out to a total of $800; 000.

Assuming that you believe your marketing department, use excel, the
choke price rule, or any other method to assist you in answering the following
questions.

1. Suppose you want to sell out the concert.

(a) What price should you charge?

(b) What are your prots?

2. Suppose you want to maximize prots?

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 (a) What price should you charge?
(b) What are your prots?
(c) How many tickets do you sell?
(d) At the prot-maximizing price, there are many potential concert-
goers who are willing to pay much more than the direct cost of ac-
commodating them. Moreover, you have not sold out the grounds.
Many people would conclude that you are charging too high a
price. What mistake would these people be making? Put dier-
ently, why is it not a good idea to lower the ticket price a bit and
get some of those potential concertgoers?

Assume from now on that you maximize prots.

3. The local government has decided to impose an additional 100,000

tax on you.

(a) How does this aect your ticket price?

(b) How does this aect the number of tickets you sell?
(c) What are your prots?

4. The local government has changed its mind. Instead of a $100; 000
tax, it will charge a tax of $10 per spectator.

(a) How does this aect your ticket price?

(b) How does this aect the number of tickets you sell?
(c) What are your prots?

5. The local government has again changed its mind there will not be any
tax at all. In the meantime, your marketing department has realized
that it had forgotten to take into account the money that customers
spend on food and drink. Regardless of the ticket price, on average
each customer will spend $17 on food and drink. Your net revenue
from an expenditure of $17 is $8.

(a) Once you take into account this extra source of revenue, what is
your prot-maximizing price?

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 (b) Do you sell more tickets than before or fewer?

6. The o ce furniture business has seven rms with market shares of

30%; 20%; 15%; 15%; 10%; 5%; and 5%. The rm with a market share
of 10% is seeking a merger with one of the other rms. What is the
largest rm it could merge with while falling within the safe harbor
region, according to EU guidelines. (Explain.)